In electric power systems, power consuming loads are connected to power generating devices. While ideal loads are purely resistive, many loads have some level of reactance (e.g., capacitive reactance or inductive reactance.) When a load is reactive, energy storage within the load causes a phase shift between the voltage and current components of the power being provided to the load. This phase shift results in an increase in the current being provided, which in turn results in an increased apparent power supplied to the load compared to the real power that is being utilized by the load. The difference between apparent power and real power is quantified by a displacement power factor. The displacement power factor is one component of the true power factor. Additionally, Total Harmonic Distortion (THD) can contribute significantly to the power factor of a load. THD occurs in nonlinear loads which introduce harmonics into the power drawn from the power generating device. These additional harmonics result in increased apparent power being drawn by the load.
Purely resistive loads have a unity power factor (i.e., a power factor of one), while reactive loads have a power factor of less than unity. Power companies charge based on apparent power and, therefore, charge more for increased levels of apparent power consumption. Thus, loads with a power factor less than unity may be more expensive to operate than loads with a unity power factor for the same real power input to the load.